BB Biotech ends a turbulent first quarter in good health
BB Biotech posted a respectable performance in the first quarter of 2021, in a period that proved to be quite turbulent for biotech stocks. As of 31 March, BB Biotech stock closed at CHF82.20, up 15.4% year to date, while the NAV was CHF70.75/share, up 5.5%. The premium to NAV has grown by around 10% points in the quarter to 16.1%, reflecting investors’ confidence in the company’s manager, Bellevue Asset Management.
US biotech stocks enjoyed a strong run into 2021 but peaked in early February and many have since pulled back to register a decline over the period. The Nasdaq Biotechnology Index (NBI), which is dominated by large caps, was essentially flat in the quarter having recovered by around 2% yesterday and the S&P Biotech ETF (ticker: XBI), which has an equal weighted portfolio, saw a decline of 3.4% in the period. These indices are respectively 12% and 22% below their recent peaks, reached on 9 February.
BB Biotech saw declines on around half of the positions in its portfolio (as of 31 December), including four of its six core holdings in the quarter. And amongst this latter group, only the Covid-19 vaccine manufacturer Moderna was the only one effectively to report any real stock price gain. The changes were, in order of the year-end position size, were: Ionis (-20.5%), Moderna (+25.4%), Neurocrine (1.4%), Incyte (-6.6%), Vertex (-9.9%) and Argenx (-6.4%).
[It is, of course, not known yet what changes were made to holdings in the first quarter (the detailed portfolio will be disclosed later this month). Based on the portfolio composition at 31 December, the holdings that have contributed most positively to performance are likely to be Moderna and Macrogenics (1.7% and 1% of NAV), while the largest detractors would be Ionis and Arvinas (2.1% and 0.9% of NAV respectively), according to an analysis by Marten & Co.]
Ionis suffered a major setback just over a week ago when Roche, its partner for a late-stage drug, discontinued dosing in Phase III trials as a result of safety concerns. The drug, tominersen, is being developed for Huntington’s disease. Roche has not yet made a decision on the ultimate fate of the programme, but it seems highly unlikely that it will be able to go forward in any way.
To compound matters for BB Biotech, this unexpected setback had a knock-on effect on another company, Wave Life Sciences, which is also in the portfolio. Wave is – or rather was – developing a similar product for the same disease, but within the same week had reported Phase II data that fell short in terms of efficacy and it has already been abandoned.
Ionis did however, report positive data from a Phase II study Ionis PKK-LRx in hereditary angioedema. The company also has two relatively important data events to look forward to in Q2 (results of Ionis-GHR-LRx in acromegaly and Ionis-ENAC2.5Rx in cystic fibrosis), which may help catalyse a share price recovery.
All of the five “high conviction” holdings where BB Biotech has a >9% holding of the investee companies’ equity, saw gains in the first quarter, respectively: Radius Health (+16.8%), Esperion (7.9%), Molecular Templates (+34.4%), Kezar Life Sciences (14.2%) and Scholar Rock Holding (4.4%), [highlighting manager Bellevue’s stock picking skills.]
Seven new holdings were added to BB Biotech’s portfolio last year, although here the performance was more mixed. Three saw double digit declines: Relay Therapeutics (-16.8%), Black Diamond Therapeutics (-24.3%) and Mersana (-39.2%), while stock price changes for Fate Therapeutics (-9.3%) and Beam Therapeutics (-2%) were smaller. Generation Bio (+0.4%) and Biogen (+14.3%), recorded gains.
Biogen is at the centre of one of the biggest controversies in the sector. Investors are waiting to see if the FDA approves the drug over the unanimous objections of its scientific advisory committee. The FDA had earlier extended the review time to early June which led analysts to speculate that it may be prepared to over-rule its outside advisors.
[While the biotech sector enters the second quarter of 2021 on an apparent rising tide, the performance in the first once again highlights its volatile nature and underscores that for most investors, collective vehicles such as BB Biotech may be the best way to gain exposure.]